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Key Person Insurance

Meaning: 

Key Person Insurance is defined as a type of insurance that businesses purchase to protect themselves from financial losses resulting from the death or disability of a key employee, such as a CEO, founder, partner, or top manager.

Importance:

It is essential for preventing disruptions in business operations and ensuring financial stability during crises.
Key Person Insurance provides a safety net that helps the business recover and continue functioning smoothly.

How to understand Key Person Insurance:

This insurance is particularly important for startups and family businesses that depend on a few key individuals for their success.
The coverage protects the company itself, not the employee’s family, ensuring that the business can manage any financial challenges.

Uses in Finance:   

Key Person Insurance is used in business continuity planning, supports loan approvals (as banks often require it), and plays a crucial role in startup risk management.



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